The oldest stock market indicator known to man is flashing a big buy sign

Reports on the imminent demise of the eight-year equity bull
market have been greatly exaggerated, at least according to a
century-old indicator.

The godfather of technical analysis, known as Dow
Theory, says transportation and industrial stocks must
advance together for market gains to last. The most bullish
signal possible is when the two groups hit record highs
simultaneously.

So it's smooth sailing for stocks, right? Not quite. The
situation is not that simple for stock bears.

Recent strength in the Dow propelled the index to a record high
on Monday, but the associated transportation index did not reach
one, and that lack of confirmation has troubled some market
pessimists.

Fear not, says Raymond James chief investment strategist Jeffrey
Saut, who points out that transportation and industrial indexes
in the S&P
500 achieved highs on the same day. While not adherent to the
exact parameters of Dow Theory, this is a bullish signal
nonetheless, he said.

While Saut acknowledges that the situation with the Dow is a
so-called bearish divergence, he notes that the Dow
transportation index is still within 2% of confirming the bullish
trend.

Over time, Dow Theory has developed a reputation as a reliable
indicator. It flashed a sell signal in November 2007, before
major losses for US indexes. It also returned a bullish reading
in October 2008, about six months before the start of the ongoing
bull market.

While it's far from perfect — after all, no stock indicator is —
Saut is banking on the continued bullishness Dow Theory is
foreshadowing. He's particularly intrigued by what he perceives
to be a lack of overly confident sentiment and sees the
undercurrent of pessimism is healthy for the market.

"We remain in the camp that this upside breakout is a solid
breakout to new all-time highs," Saut wrote. "We think that when
the negative nabobs turn positive, that will be the time to raise
cash. Until then we remain bullish."